Macro Prudential

The Banking Supervision Department has made commendable progress strengthening Banking Sector's micro-prudential supervision in recent years through the work of the Offsite, Onsite, Regulation, Licensing, Basel II Implementation, Credit Registry and Legal Cases Units, raising the resilience of the Banking Sector. It also envisaged the contribution of the macro-level supervision to the soundness of the sector and added the seventh unit to the Department, the Macro-Prudential Unit (MPRU).

The unit's objective is to build a broad and deep understanding of the banking sector by regularly assessing financial soundness indicators, and systemic risks that may arise taking into account economic and financial developments; in addition to analysis of structural trends / vulnerabilities through identifying, quantifying, and assessing the effects of the build-up of macro-prudential risks. The analytical framework of the MPRU is focusing around macro-prudential surveillance, the examination of the macro-economic indicators including financial markets to assess the impact on the banking sector. The key quantitative analytical tools used for macro-prudential surveillance are conducting of Stress Testing exercises and continuous monitoring of Financial Soundness Indicators (FSIs).

Stress Testing exercises are forward looking analytical tools for evaluating the Banking Sector soundness to withstand exceptional but plausible shocks that could cause future challenges. Several types of Stress Tests are performed by the unit: Credit, Liquidity and Interest Rates. The MPRU is working on the development of an econometric model linking the developments of main macro-economic variables with banking performance indicators, providing a vital context for the analysis of sector's vulnerabilities.

The FSIs' analysis are used to monitor the Banking Sector's asset quality, liquidity indicators, profitability and the capacity of capital adequacy to absorb any vulnerabilities the sector might be exposed to. Their analysis involves trends' assessment and comparison between peer groups. This analysis seeks to identify possible indicators' patterns that might cause potential challenges.